GREATER BOMBAY CO-OP. BANK LTD. v. M-S UNITED YARN TEX. PVT. LTD. & ORS

Citation: [2007] 4 S.C.R. 823

Court: Supreme Court of India

Bench: B.N. AGRAWAL, P.P. NAOLEKAR, LOKESHWAR SINGH PANTA

Case summary

GREATER BOMBAY CO-OP. BANK LTD. v. M-S UNITED YARN TEX. PVT. LTD. & ORS.pdf

Judgment text

I • . r_ .... '> GREATER BOMBAY C().. ()P. BANK LlD. A v. MIS UNITED YARN TEX. PVT. LlD. & ORS. APRIL 4, 2007 [B. N. AGRAWAL, P. P. NAOLEKARAND B LOKESHWARSINGH PANTA, JJ. } '? - ~. Constitution of India, 1950: Seventh Schedule, List /! -Entry 32-List /-Entries 43 and 45-He/d, c Co-operative Banks are not covered by Entry 45 of List /, dealing with 'banking'-Entry 43, List I dealing with banking, financial corporation etc. , expressly excludes co-operative societies from its ambit-Subject of Cooperative Societies is covered under Entry 32 ofList II-Co-operative forms a specie of genus 'corporation', and as such co-operative societies, with D objects. not confined to one State read in with the Union as provided in Entry .

; ; I 44 of List I, MSCS Act, 2002 governs such multi state co-operatives- Maharashtra Co-operative Societies Act, 1960-Andhra Pradesh Co-operative Societies Act, 1964-Mu/ti State Co-operative Societies Act, 2002-Recovery of Debts Due to Banks and Financial Institutions Act, 1993- Banking Regulation Act, 1949. E Doctrine of occupied field-Held, co-operative Societies cannot be said to have been c.. vered by centra/legislation by reference ofEntry 45, List 1 Doctrine of pith and substance-Held, a co-operative bank is not a F l'· 'banking company' under s. 5(c) ofB. R. Act- Even if the co-operatives are involved in activity of banking which involves lending and borrowing, this is purely incidental to their main co-operative activity which is a function in public domairr-Banking Regulation Act, 1949-s. 5(c).

G Co-operative Societies: Co-operative Banks-Recovery ofdues of-Applicability ofRDB Act- Held, dues ofco-operative societies and recovery proceedings in connection 'I therewith are covered by specific Acts, namely, MCS Act, 1960, APCS Act, 823 H '- ~ i 824 SUPREME COURT REPORTS [2007) 4 S. C. R. .... ~· A 1964 and MCSC Act, 2002, which are comprehensive and self-contained •• t . • • I • .... ·legislations-Even if co-operative banks are involved in certain banking activities of lending and borrowing, this is purely incidental to their main , ' co-operative activity which is a function in public domain-Therefore, provisions of RDB Act, by invoking doctrine of incorporation are not applicable to recovery of dues by co-operatives from their members- B Maharashtra Co-operative Societie~ Act, 1960-Andhra Pradesh Co-operative Societies Act, 1964- Mu/ti State Co-operativ_e Socif!

ties Act, 2002 Recovery of Debts Due to Banks and Financial Institutions Act, 1993- Banking "': Regulation Act, 1949-/nterpretation ofStatutes- Doctrine ofincorporation. ""' Maharashtra Co-operative Societies Act, /960/Andhra Pradesh Coc operative Societies Act, 1964: S. 91/ss. 61, 62, 70 and 71-Registrar or an officer designated by him or an arbitrator not 'civil courts'. . · . 'Banking Regulat~on Act, 1949: D S. 5(c)-"Banking Company"-Held, "Co-operative banks" established under MCS Act, 1960; APCS Act, 1964 and MSCS Act, 2002, transacting the business ofbanking do notfall within' the meaning of 'banking company' as .. • "" defined fn s. 5(c) ofthe B. R. Act. E Words and Phrases: 'Court'-Connotation of in the context. of RDB Act, 1993.

Co-operative banks established und~r the Maharashtra Co-operative Societies Ad, 1960 (MCS Act, 1960), the Andhra Pradesh Co-operative F Societies Act, 1964 (APCS Act, 1964) and the Multi-State Co-operative Societies Act, 2002 (MSCS Act, 2002), advanced loans to the respondent ·'f Companies which were the members ofthe respective Co-operative Societies. When the Co-operative Banks sought to recover their dues, writ petitions were filed before tbe High Courts cllallenging the jurisdiction ofhe authorities G under the respective Co-operative Societies Act to recover the dues. The Full Bench orthe Bombay High Court held that on and·from the date the Debts Recovery Tribunal was constituted un~er the Recovery orDebts Due to Banks and Financial Iristitutions Act, 1993 (RJ>B Act, 1993), the Courts and ),:'. authorities under the Co-operative Societies Acts would cease to have jurisdiction to entertain ;:pplications submitted by Co-operative Banks for H \ GREATEllBOMBAYC~P. BANKLTI>. v.

VNJTEDYAANTEX. PVT. Lm. 825 recovery oftheir dues. Similarly, the Full Bench ofthe Andhra Pradesh High ;>• A Court held that the Tribunal constituted under the RDB Act had exclusive jurisdiction, powers and authority. to entertain and decide application from a Co-operative Bank for recovery ofdebts due to such bank, subject to the pecuniary jurisdiction specified under the said Act. The Andbra Pradesh High Court further declared sections 61 and 71 of the APCS Act, 1964 being B beyond legislative competence ofthe State Legislature and also in direct and clear conflict with the provisions ofthe RDB Act. Both these decisions were ,. challenged in appeals before the Supreme Court. The Division Bench before which the appeals came to be listed, felt that the matter required to be ~ considered by a Larger Bench and, thus, the appeals were heard by the present ,. three-Judge Bench.

c On the questions: (a) whether the RDB Act applies to debts due to cooperative banks constituted under the MCS Act, 1960; the MSCS Act, 2002 and the APCS Act, 1964, and (b) whether the State Legislature is competent to enact legislation in respect ofco-operative societies incidentally transacting business ofbanking in the light of Entry 32, List II ofSeventh Schedule of D the Constitution. f .. Answering the reference, the Court HELD: 1. 1. The dues of co-operatives and recovery proceedings in connection therewith are covered by specific Acts, such as the MCS Act, 1960 E and the APCS Act, 1964, which are comprehensive and self-contained legislations. Similarly, for Multi-State Co-operatives there is a specific enactment in the form ofthe MSCS Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such co-operatives.

Therefore, when there is an admittedly existing legal framework specifically F dealing with issues pertaining to co-operatives and especially when the co- ... , operative banks are, in any case, not covered by the provisions ofthe RDB Act specifically, there is no justification ofcovering the co-operative banks -l under the provisions of the RDB Act by invoking the Doctrine of Incorporation. (Para 55} rss7-G-H; 858-AJ G Surana Steels Pvt. Ltd etc. v. Deputy Commissioner ofIncome Tax & Ors. etc. , (1999) 4 SCC 306, relied on. Mls Fatehchand Himmatlal & Ors. v. State ofMaharashtra, (1977) 2 ~ SCC 670; Mls Hoechst Pharmaceutical Ltd & Ors. v. State ofBihar & Ors. , {1983}4 sec 45, cited; H 826 SUPREME COURT REPORTS (2007] 4 S. C. R. A The Shamrao Vithal Co-operative Bank Limited v. Mls Star Glass Works .... ' . ... :· & Ors. , (2003) 1 MLJ 1, overruled. 1. 2.

The distinction between peoples' co-operative banks serving their members and corporate banks doing commercial transactions is fundamental to the constitutional dispensation and understanding co-operative banking B generally and in the context of cooperative banking not coming under the ambit ofthe BRAct. Thus, even ifthe co-operatives are involved in the activity ofbanking which involves lending and borrowing, this is purely incidental to >: their main co-operative activity which is a function in public domain. (Para 57) [858-C-D) " ~ c Zoroastrian Co-operative Housing Society Ltd. v. District Registrar, Cooperative Societies (~Jrban), (2005) 5 SCC 632, referred to. 1. 3. The RDB Act was designed to deal with other banks and fmancial institutions which had to have recourse to the tim~onsoming process ofthe Civil Courts. The Co-operative Societies Ads on the one hand and RDB Act D on the other hand, cannot be regarded as supplemental to each otherviz. , the provisions ofthe said ActSs.

cannot be sajd to bepari-materia. The RDB Act is ~ .. consistent with the general banks and their creditorslloanees while the MCS Act, 1960; the APCS Act, 1964 and the MSCS Act, 2002 are concerned with the regulation of Co-operative societies only. The language of the sections in E these enactments defining 'banking company' is plain, clear and explicit. It does not admit any doubtful interpretation as the intention of the legislature is clear. [Paras 59, 60 and 69] (859-B, E ; 861-H; 862-A] Virendra Pal Singh v. District Assistant Registrar, (1980) 4 SCC 109, relied on. ..... i F 1. 4. Section 31 ofRDB Act clearly refers to transfer of 'every suit or '( other proceedicg pending before any court'. The word 'court', in the context of the RDB Act, signifies 'civil court'.

It is clear that the Registra r , or an officer designated by him or an arbitrator under Sections 61, 62, 70 and 71 ofthe APCS Act, 1964and under Section 91 and other provisions ofChapter G IX of the MCS Act, 1960 are not ' civil courts' . (Para 621 [860-G-H) Harinagar Sugar Mills v. Shyam, (1962)2 SCR 339; Ram Rao & Anr. v. Narayan & Anr. , AIR [1969) SC 724; Kihoto Hol/ohan v. Zachillhu & Ors. , ~ [1992) Supp. 2 SCC 651 Para 98 and Supreme Court Legal Aid Committee representing undertrial prisoners v. Union ofIndia, (1994] 6 SCC 731, relied H GREATERBOMBAYCQ. OP. BANK LTO. v. UNITEDYAA. NTEX. PVT. LTD 827 on. A Thakur Jugal Kishore v. Sitamarhilt, [1967] 3 SCR 163, held inapplicable. 1. 5. The RDB Act was passed in 1993 when Parliament had before it the provisions ofthe BR Act as amended by Act No. 23 of 1965 by addition of B some more clauses in Section 56 ofthe Act.

The Parliament was fully aware that the provisions ofthe BRAct apply to C(H)perative societies as they apply to banking companies. The Parliament was also aware that the definition of 'banking company' in Section 5 (c) had not been altered by Act No. 23 of1965 and it was kept intact, and in fact additional definitions were added by Section C 56(c). "C()o(lperative bank" was separately defined by the newly inserted clause (cci) and "primary co-operative bank" was similarly separately defined by clause (ccv). The Parliament was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions ofthe BRAct. The meaning of ' banking company' must, therefore, necessarily be strictly confined to the words used in Section S(c) ofthe BRAct. There was D a conscious exclusion and deliberate omission of co-operatic banks from the purview ofthe RDB Act. It could not be said that Amendments in Chapter V, Section 56 of the RDB Act by Act No.

23 of 1965 inserting "co-operative bank" in Clause (cci) and "primary co-operative bank" in Clause (ccv) either expressly or by necessary intentment apply to the co-operative banks transacting business ofbanking. (Paras 70] [858-E-G; 862-C) E 1. 6. "Co-operative banks" established under the Maharashtra Cooperative Societies Act, 1960 [MCS Act, 1960]; the Andhra Pradesh Cooperative Societies Act, 1964 (APCS Act, 1964]; and the Multi-State Cooperative Societies Act, 2002 [MSCS Act, 2002) transacting the business of banking, do not fall within the meaning of"bimking company" as defined in F Section 5 (c) ofthe Banking Regulation Act, 1949(BR Act]. Therefore, the ~· provisions ofthe Recovery ofDebts Due to Banks and Financial Institutions Act, 1993 (RDB Act] by invoking the Doctrine ofIncorporation are not applicable to the recovery ofdues by the co-operatives from their members. [Para 89) [869-G-H; 870-A) G 2. 1.

The constitutional validity ofan Act can be challenged only on two grounds, viz. (i) lack oflegislative competence; and (ii) violation of any ofthe Fundamental Rights guaranteed in Part m ofthe Constitution or ofany other constitlltional provision. [Para 71] [862-D] H 828 SUPREME COURT REPORTS [2007] 4 S. C. R. A State ofA. P & Ors. v. McDowell & Co. & Ors. , (1996) 3 SCC 709, relied on. 2. 2. Power to enact a law is derived by the State Assemb'y from List II ofthe Seventh Schedule to the Constitution ofIndia. Entry 32 ofList nconfers upon a State Legislature the power to constitute co-operative societies. The B State ofMaharashtra and the State ofAndhr:~ Pradesh both have enacted the MCS Act, 1960 and the APCS Act, 1964 in exercise of the power vested in them by Entry 32 ofList II ofthe Seventh Schedule to the Constitution. ,. [Para 72] [862-F) ..... Subramanyan Chettiar v. Muttuswami Goundan, AIR (1941) FC 47; A. c S. Krishna v.

State ofMadras, [1957) SCR 399 and State ofRajasthan v. Chawala, [1959) (Suppl. 1) SCR 904, relied on. State ofBihar & Ors. v. Bihar Distillery Ltd. C? rs. , [1997) . 2 SCC 453, referred to. D 2. 3. Entry 43 List of I speaks of banking, insurance and financial corporations etc. but expressly exclud~ co-operative societies from its ambit the constitution! intendment seems to be that the co-operative movement was ~ to be left to the States to promote and leg. islate upon and the banking activities of co-operative societies were also not to be touchtd unless Parliament considered it imperative. The BRAct deals with the regulation ofthe bimking E business. There is no provision whatsoever relating to proceedings for recovery by any bank ofits dues. Recovery was initially governed by the Code orCivil Procedure by way ofcivil suits and after the RDB Act came into force, the recovery ofthe dues ofthe banks and financial institutions was by filing of applications to the Tribunal.

The Tribunal has been establishW. with the F sole object to provide speedy remedy for recovery ofdebts ofthe banks and financial institutions since there has been considerable difficulties experienced therefore from normal remedy of Civil Court. [Para 79] (86>E-G) 2. 4. Therefore, the express exclusion ofco-operative societies in Entry G 43 ofList I and the express inclusion ofco-operative societies in Entry 32 of List IIseparately and apart from but along with corporations other than those specified in List I and universities, clearly indicated that the constitutional scheme was designed to treat co-operative societies as institutions distinct '.. ; from corporations. Co-operative Societies, incorporation, regulation and H winding up are State subjects in the ambit ofEntry 32 of List II ofSeventh \ , GREATERBOMBAYCO. OP. BANKLTI>. v. UNITEDYARNTEX. PVT. l TO. 829 Schedule to the Constitution of India.

Co-operatives form a specie ofgenus A 'corporation' and as such co-operative societies with objects not confined to one State read in with the Union as provided in Entry 44 ofList I ofthe Seventh Schedule ofthe Constitution, MSCS Act, 2002 governs such multi-state cooperatives. [Para 80)(865-H; 866-A-BJ R. C. Cooper, etc. v. Union ofIndia, (197011 sec 248, referred to. B . ,. 2. 5. The field ofco-operative societies cannot be said to have been covered by the Central Legislation by reference to Entry 45, List I of the Seventh Schedule to the Constitution. The co-operative banks performing functions for the public with a limited commercial function as opposed to corporate C banks cannot be covered by Entry 45 ofList I dealing with "banking". Cooperative Banks constituted under the Co-operative Societies Acts enacted by the respective States would be covered by co-operative societies by Entry 32 ofList II of Seventh Schedule to the Constitution.

[Paras 90 and 811 Associated Timber Industries & Ors. v. Central Bank ofIndia & Anr. , D [2000}7 SCC 93; State ofMaharashtra v. Laljit Rajshi Shah and Ors. , [2000) 2 SCC 699 and Union ofIndia v. Delhi High Court Bar Association, [2002) 4 sec 275, held inapplicable. The Life Insurance Corporation ofIndia v. D. J. Bahadur & Ors. , AIR {19801 SC 2181; ITC Ltd. v. Agricultural Produce Market Committee & Ors. , E [2002) 9 sec 232, referred to. CIVIL APPEALLATE JURISDICTION: Civil Appeal No. 432 of2004. From the Final Judgment and Order dated 06. 10. 2005 ofthe High Court of Judicature of Kamataka at Bangalore in Writ Appeal Nos. 5271 & 5724 of F 2002. WITH Civil Appeal No. 433t2004, Civil Appeal No. 434t2004, Civil Appeal No. 436/ 2004, SLP (C) Nos. l5651-15652t2005, SLP (C) No. 5592t2004, SLP (C)No. 5598/ G 2004, SLP (C) No. 5890t2004, Civil Appeal No. 36t2006, Civil Appeal No. 37t2006, Civil Appeal No. 38/2006, Civil Appeal No. 916/2006, Civil Appeal No. 2819/ '=1 •. UNITEDYARN TEX. PVT.

LTD. [lOKESHWARSINGH PANTA,J. J8JJ the premises of the r~spondent-Company on Ist February, 2003 for effecting A recovery by way ofattachment and sale ofproperty specified in the Schedule attached thereto. 7. In January 2003, the respondent-Company filed a Writ Petition No. 727/2003 before the High Court ofBombay impugning the recovery certificate dated 3rc! December, 2002. Learned Single Judge ofthe High Court vide order B dated 31st January, 2003 passed an ad-interim ex parte order restraining the Special Recovery and Sales Officer, in any manner, from proceeding with or in pursuant to recovery certificate dated 3rd December, 2002. It appears from the order ofthe High Court that the Division Bench ofthe High Court in The Shamrao Vithal Co-operative Bank Limited v. Mls Star Glass Works & Ors. , C (2003) 1 MLJ 1 held that the Debts Recovery Tribunal constituted under the RDB Act has the jurisdiction to entertain an application submitted by a cooperative bank for recovery ofits debts.

The Division Bench on consideration ofthe provisions ofSection 56 ofthe Banking Regulation Act, 1949 [ for short "the BR Act"] came to the conclusion that 'Co-operative Bank' falls within D the meaning of Section 2(d) of the RDB Act and, therefore, the only remedy ,. available in tenns of the provisions of the RDB Act to a co-operative bank ~- -1 . after the constitution ofthe Tribunal under the RDB Act for recovery ofdebts due to it, is to apply to such a tribunal for an order. 8. The order ofthe High Court reveals that one Narendra Kanti Lal filed E Writ Petition No. 6079/2002 in the High Court praying for setting aside the recovery certificate dated 6th September, 2000 issued by the Assistant Registrar (Co-operative Societies) in exercise of his powers under Section 101 of the MCS Act, 1960 and the warrant of attachment issued pursuant thereto on the application made by Jan Kalyan Sahakari Bank Limited, one ofthe respondents in the said petition.

When that petition came up for admission before the F learned Single iudge ofthe Bombay High Court, the petitioner therein brought to the notice of the learned Single Judge the earlier judgment of the Division Bench in Shamrao Vithalrao Co-operative Banks' case (supra). The learned Single Judge, however, was of the opinion that the Division Bench in its judgment did not consider that the MCS Act, 1960 has been enacted by the G State Legislation under Entry 32, List II of the Seventh Schedule of the Constitution of India. The learned Single Judge having considered the importance ofthe question involved in the matter directed to place the matter before Hon'ble the Chief Justice of the High Court for Reference before the Full Bench. It appears that in the meantime, some more Writ petitions came H up before the Division Bench raising the same question. Hon'ble ChiefJustice 834 SUPREME COURT REPORTS [2007] 4 S. C. R. A ofthe High Court decided to refer the matters to the Fall Bench.

This is how all the petitions were placed before the Full Bench for deciding the referred questions. 9. The Full Bench, after hearing the learned counsel for the parties and having gone through the various provisions of the Statutes and Entries 43, B 44 and 45, List I of Seventh Schedule of the Constitution of India, answered the reference as under:- "For all these reasons, therefore, we hold that on and from the date on which the Debts Recovery Tribunal was constituted under the 1993 Act, the courts and authorities under the 1960 Act as also the c 2002 Act would cease to have jurisdiction to entertain the applications submitted by the Co-operative Banks for recovery of their dues. " 10. However, the High Court held that the State Legislature was competent to enact the MCS Act, 1960. D II . In Civil Appeal No. 36/2006 titled A. P. State Co-operative Bank Limited v. Samudra Shrimp (P) Ltd. & Ors.

, after detailed examination ofthe various submissions before it, Full Bench ofthe Andhra Pradesh High Court in a batch of writ petitions, writ appeals and civil revision petitions struck down the constitutional validity of Sections 61 and 71 ofthe APCS Act, 1964. E In the concluding portions, the High Court culled out as follows:- "(a) That recovery ofmonies (whether called a debt, arrears or by any other name) due to a banking institution including a Co-operative Bank is a matter that integrally falls within the core and substantive area of the legislative field Banking in Entry-45, List-1 of the F Seventh Schedule of the Co11stitution. (b) The above subject matter is therefore excluded from the State '('' legislative field in Entr)r-32, List-ll of the Seventh Schedule. (c) Recovery of monies due to a Co-operative Bank is not a matter G that falls within the incidental' and ancillary areas of the State legislative field in Entry-32, List-ll of the Seventh Schedule.

(d) A Co-operative Sank as defined in Section 5(cci) ofthe Banking Regulation Act, 1949 (as amended by Act 23 of 1965) is a Bank and a Banking Company within the meaning of Section 2(d) & H (e) of the Recovery of Debts Due to Banks and Financial \ GREATERBOMBAYC(). ()P. BM'KLTD. •· UNITEDYARNTEX PVT LTD. (LOKESKWARSINGHPANTA. J. 1835 - ~,. Institutions Act, 1993. A (e) A Tribunal constituted under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 has exclusivejurisdiction, powers and authority to entertain and decide applications from a Co-operative Bank for recovery of debts due to such bank, subject to the pecuniary limits of jurisdiction B specified by or under the said Act. ;, ' (f) Section 71(1) of the 1964 Act in so far as it expressly confers --~ power on the Registrar to issue a certificate for recovery of arrears of any sum advanced by a financing bank to its members, is beyond the legislative competence of the State.

c (g) The words "or financing bank" in Section 71(1) of the Andhra ·- Pradesh Co-operative Societies Act, 1964 expressly result in the provisions of the Section transgressing the State's legislative limits. These words being severable are therefore declared invalid. (h) The provisions of Sections 61 and 7J {after striking down ofthe D . A·r words in Section 71(1) } are restrictively construed as excluding .. any jurisdiction, powers or authority in the Registrar in respect of recovery of debts or arrears dW' to a Co-operative Bank, its members or others which are advanced lent or otherwise made over to such member or person, during the course of the banking E business of such Co-operative Bank (i) (a)No claim, application or other proceedings lodged or instituted before the Registrar, by a Co-operative Bank for recovery of the amount/debt due from a member or other person pursuant to advances made in the course of its banking business could be F -.

, entertained or determined by the Registrar (b) Any award or order passed, certificate issued or an order in execution proceedings, by the Registrar on any claim or application of a Co-operative Bank, is patently and inherently without jurisdiction, null, void and inoperative. G (j) During the pendency ofthese writ petitions, by virtue ofvarious court orders certain amounts have been deposited by some of ':; the writ petitioners. At no point of time these writ petitioners have disputed the liability or the amount already deposited with the banks in pursuance ofthe orders ofthe Court. Therefore, we H 836 SUPREME COURT REPORTS [2007] 4 S. C. R. A direct that the amounts deposed shall be retained by the concerned banks and adjusted against the liabilities, if any, that remain to be determined pursuant to proceedings initiated by the respective banks in accordance with this judgment.

(k) In view ofthe declaration in this judgment, the respondent-banks are at liberty to proceed with the recovery of debts due to them, B before the appropriate forum and under the appropriate law, in accordance with this judgment. (I) As the proceedings initiated before the Registrar or any other authority under the 1964 Act were bona fide and as considerable time had been consumed in the litigation in this case also, the c respondent-banks shall be entitled to set off the period spent in pursuing their claims before the Registrar or other fora and before this Court, in computing the period for filing appropriate applications/cla! Jns before the appropriate authorityffribunal. " 12. The Full Bench ofthe Andhra Pradesh High Court declared Sections D .. >. ; 61 and 71 ofthe APCS Act, 1964 invalid being beyond legislative competence 1-.. of the State and also in clear and direct conflict with the provisions of 'the RDB Act' .

In interpreting the provisions of the two enactments, the Bench has employed the 'Doctrine ofReading Down '. E 13. We have carefully perused the judgments ofthe Full Benches ofthe . High Courts ofBombay and Andhra Pradesh impugned before this Court by the aggrieved parties. Before proceeding further to consider the legal question referred to the larger Bench, the provisions of the various Statutes relevant for our purpose may be first noticed. F THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT. I960 [the .. ,: MCS ACT. 1960] 14. The MCS Act, 1960 was promulgated and came into force on 26th day ofJanuary, 1962 relating to co-operative societies with a view to providing for the systematic development ofthe co-operative movement in the State of G -- Maharashtra in accordance with the Directive Principles of State Policy enunciated in the Constitution of India. The object and the working of the co-operative banks had become so large that it was found necessary to ').

:' extract more important provisions ofthe Banking Regulation Act, 1949 ['the BRAct'] and allied provisions of the Reserve Bank of India Act, 1934 ['the H I \ I GREATERBOMBAYCO-OP. BANKl. TD. •·UNITEDYARI'JTEX. P\'T. l. TD. [LOKESHWAJlSINGH PANTA. J. ) 837 RBI Act'] to the co-operative banks in public interest. A 15. Section 2 (10) ofthe MCS Act, 1960 defines "co-operative bank" to mean a society which is doing the business of banking as defined in clause (b) ofsub-section (1) of Section 5 of the Banking Companies Act, 1949 and includes any society which is functioning or is to function as a Co-operative Agriculture and Rural Multi-purpose Development Bank under Chapter XI. In B Section 2(6) of the MCS Act, 1960- "Central Bank" means a co-operative bank, the objects ofwhich include the creation of funds to be loaned to other 1 societies; but does not include the urban co-operative bank.

Section 91 ofthe MCS Act, 1960 in Chapter IX deals with settlement of any dispute touching the constitution, conduct of general meetings, management or business of a C society etc. to the Co-operative Court. Section I01 provides for recovery of arrears due to certain societies as arrears of land revenue in pursuance ofthe certificate granted by the Registrar. Under Section l8A ofthe Act, the Registrar is competent to amalgamate one or more co-operative banks in public interest or in _? rder·to secure their proper management. D 16. Section 36 under Chapter IV makes every registered society as a corporate body having perpetual succession and common seal which acts through a Committee for management with rest of its authority being in General Body ofmembers in meetings as provided in Sections 55, 72 and 73.

Section 43 provides that a society shall receive deposits and loans from · members and other persons, only to such extent, and under such conditions, E as may be prescribed or specified by bye-laws of the society. Section 44 regulates the loan making policy of a society. This Section provides that the society shall not make a loan to any person other than a member, or on the security of its own shares, or on the security of any person who is not a member. It empowers the Government to prohibit, restrict or regulate the F lending of money by any society or class of societies on the security of any property. Section 50 under Chapter V provides for direct subscription by the State Government to the share capital of a society with limited liability upon such tenns and conditions as may be agreed upon. Section 64 provides that no part of the funds other than the net profits of a society shall be paid by way of bonus or dividend, or otherwise distributed among its members.

G Chapter VII deals with Management of Societies. Section 72 provides that the final authority of every society shall, subject to the provisions ofthis Act and the Rules vests in the general body of members in general meeting. Section 73 empowers Committee to manage the society. Chapter VIII deals with Audit, Inquiry, Inspection and Supervision of the societies. Section 81 provides that H 838 SUPREME COURT REPORTS [2007) 4 S. C. R. .... the Registrar shall audit, or cause to be audited at least once in each co- A operative year, by aperson authorized by him by general or special order in writing in this behalf the account of every society which has been given financial assistance including guarantee by the State Government. Section 83 ' empowers the Registrar to conduct an inquiry into the constitution, working and financial conditions of a society. Chapter IX 'deals with Settlement of B Disputes.

A dispute touching the constitution, ele~tions of the Committee or its officers other than election of committees of the specified societies including its officer, conduct ofgeneral meetings, management or business of "' a society is covered under sub-section (I) ofSection 91 ofthe MCS Act, 1960. The settlement of disputes including the recovery of loan by a society from its members or sureties lies with the Co-operative Court. The Civil Court has c no jurisdiction to try and entertain the suit in regard to the dispute which fall both in the purview of sub-section (1) of Section 91 of the Act. Section 92 regulates the period of limitation for different types of disputes mentioned in it and the disputes of the nature as provided in Section 91 has to be tried as a suit by the Co-operative Court as a Civil Court. - Section 94 lays down D the procedure for settlement of disputes and power of Co-operative Court.

The Co-operative Court or the Registrar or the authorized person, as the case ~ may be, if satisfied on inquiry or otherwise that a party to such dispute or \the person against whom proceedings are pending under Section 88, with intent to defeat, delay or obstruct the execution of any award or the carrying out ofany order that may be made is empowered to direct additional attachment E ofthe property under Section 95. Any party aggrieved by any decision ofthe Co-operative Court or order passed by the Co-operative Court or the Registrar or the authorized person under Section 95 is at liberty to file appeal before the Co-operative Appellate Court under Section 97.

Section 98 provides that orders mentioned therein if not carried out on a certificate signed by the F Registrar or the Co-operative Court or a liquidator shall be executed in the same manner as a decree of civil court and shall be executed in the same y:: manner as a decree ofsuch court or be executed according to law and under the Rules for the time being in force for the recovery of arrears of land revenue. An application for such a recovery to be made to the Collector shall be accompanied by a certificate signed by the Registrar and shall be made G within twelve years from the date fixed in the order an~ ifno such date is ftxed from the date of the order. Recovery Certifica~e is issued by the Registrar under sub-section (I) of Section I0l ofthe MCS Act, 1960 and the mode for recovery ofthe amount is under Section 156 ofthe Act. Chapter X deals with . -_. : liquidation of the societies. Section 102 empowers the Registrar to issue an H interim order ofwinding up of the society.

An appeal against the winding up GREATERBOMBAYCO-OP. BANKLTD. v. UNITED YARNTEX. PVT. LTD. [LOKESHWARSINGHPANTA,l. J 839 . "'. :c.. , . of the society shall be made by the aggrieved party to the State Government A under Section 104. Section 105 lays down the powers of the liquidator. Cognizance by the Civil Court of any matter connected with the winding up or dissolution of a society under this Act is barred under Section 107. THE ANDHRA PRADESHCO-OPERATIVE SOCIETIESACT, 1964 [THE APCS ACT, 1964] B 17. The Andhra Pradesh State Co-operative Bank Limited was formed by the ·amalgamation of the previous Andhra Pradesh State Co-operative Bank Limited, Vijayawada No.

2120 and Hyderabad Co-operative Apex Bank Limited, Hyderabad, under the Andhra Pradesh Co-operative Bank (Formation) C Act, 1963 and by the merger of the Andhra Pradesh Central Agricultural Development Bank Limited, Hyderabad, under Act 14 of 1994 and was deemed to be registered as a Co-operative Society under the Andhra Pradesh Cooperative Societies Act of 1964 [the APCS Act, 1964]. 18. The APCS Act, 1964 was enacted with Statement of Objects and D Reasons to consolidate and amend the law relating to Co-operative Societies in the State of Andhra Pradesh in order to facilitate and strengthen the · functioning of Co-operative Societies based on Co-operative principles and · Co-operative identity. Section 2 deals with defmitions clause.

Clause (f) defmes 'fmancing bank' to mean 'a society, the main object ofwhich is to assist any affiliated or other society by giving loans or advancing moneys; and includes E any scheduled bank as defined in the RBI Act and such other body corporate or fmancial institution as may be notified by the Government from time to time, which gives financial or other aid to a society'. Chapter II of the Act deals with Registration of Societies. A society which has, its main object, the promotion of the economic interests of its members in accordance with the Co-operative principles..... , the registration ofa society shall render it a body F corporate by the name under which it is registered having perpetual succession and a common seal in terms ofSection 9. In Chapter III, Section 19 prescribes the eligibility for membership ofthe Society.

Under Chapter IV, the Management of Societies ultimately shall vest in the General Body, whereas Section 30-A empowers the General Body of every society to constitute a supervisory G council to ensure that the affairs of the society. are conducted in accordance with the principles of Co-operation, provisions of the Act, Rules, bye-laws and resolutions of the General Body. The General Body of a society is also empowered to constitute a Committee 'in accordance with the bye-laws and entrust the management of the affairs of the society to such Committee -t H 840 SUPREME COURT REPORTS [2007} 4 S. C. R. A (Section 31 of the Act). Powers and functions of the Committee are provided under Section 31-A. Chapter V deals with the Rights and Privileges of the Societies. Under Section 35, the society has preferential charge upon the crop or other agricultural produce, cattle fodder for cattle, agricultural or industrial implements etc.

owned by a member including a past or deceased member who is in default of payment of any debt o~ other amount due to a society. B Such charge shall be available even as against any amount recoverable by the Government as if it were an arrear of land revenue. Section 47 empowers a society to receive deposits and raise loans only to such extent and under such conditions as may be specified in·the bye-laws. Sub-section (2) prohibits the society from granting a loan to any person other than a member, but if C general or special sanction is obtained from the Registrar, tlie society may grant loans to another society or its employees on such terms as may be specified in the bye-laws. Chapter VII deals with Audit, Inquiry, Inspection and Surcharge. Section 50 lays down that there shall be a separate wing for audit in the Co-operative Department headed by the Chief Auditor who will work under the general superintendence and control of the Registrar of Co- D operative Societies.

The Chief Auditor shall audit or cause to be audited by a person authorized by him by a general or special order in this behalf, the accounts of a society at least once in every year and shall issue or cause to be issued an audit certificate. The Registrar is also authorized under Section 51 to hold an inquiry into the constitution, working and fmancial condition E of the society, either suo motu or on the application of the society to which the society concerned is affiliated. Under Section 52, the Registrar may, on his own motion or on the application of a creditor of a society, inspect or direct any person authorized by him by a general or special order in this behalf to inspect the books of the society. Accounts and Bopks etc. of the societies are to be maintained and kept by the ChiefExe~utive Officer ofevery F society and the President of the society jointly and severally. . .. , 19.

Chapter VIII ofthe APCS Act, 1964 deals with Settlement ofDisputes touching the constitution, management or the business of a society, other than a dispute regarding disciplinary action taken by the society or its G committee against a paid employee of the society. Explanation to Section 61 prescribes the nature of the dispute for the purposes of sub-section (1) to include a claim by a society for any debt N other ~mount due to it from a member, past member, the nominee, heir or legal representative ofa deceased member, whet~er such debt . or other amount be admitted or not and a claim by surety against the principal debtor where the society has recovered from H the surety any amount in respect of any debt or other amount due to it from 1· GR£ATER80MBAYCO. OP. BANK LID •· UNITEDY. uJIITEX. PVT LID (LOK£SHWARSDIGHPANTA. J. l84} I the principal debtor as a result of the default of the principal debtor whether A such debt or other amount due to be admitted or not.

All such disputes, which are enumerated under Section 61 of the Act, shall be referred to the Registrar for decision. The Registrar is empowered to decide the dispute himself or transfer. it for disposal to any person who has been invested by the Government with powers in that behalf or refer it for disposal to an arbitrator under Section. 62 of the Act. Section 63 empowers the financing B bank to proceed against members of a society for recovery of moneys due to it from such society. Under Section 64 contained in Chapter IX, if the Registrar, after an inquiry held under Section 51or an inspection made under Section 52 or on receipt of an application made by not less than two-thirds of the members, is ofthe opinion that the society ought to be wound up, he C may after giving tfle society an opportunity of making its representation, by order direct it to be wound up.

Where the order ofwinding up is made under Section 64, the Registrar may appoint a Liquidator for tha• purpose under Section 65. Chapter X deals with Execution ofDecisions, Decrees and Orders. The Registrar or any person authorized by him in this behalf is authorized to recover certain amount due under a decision or an order of the Registrar, or D any person authorized by him, or an arbitrator by attachment and sale of property and execution of the orders.

The recovery of any amount may be executed by the Civil Court having local jurisdiction on a certificate signed by the Registrar or any person authorized by him in this behalfas ifthe order or decision were a decree of that Court; or by the Collector, on an application E made to him within twelve years from the date ftXed for payment in the order or decision and if no such date fixed from the date of the order or decision, along with a certificate signed by the Registrar or by any person authorized by him in this behalf, as if the amount due under the order or decision were an arrear ofland revenue. Section 71 provides for recovery of debts. It reads: "(1) Notwithstanding anything in this Act cr in any other law for the time F .......

( being in force and without prejudice to any other mode ofrecovery which is being taken or may be taken, the Registrar may, on the application made by a society or fmancing bank or federal society as the case may be, for the recovery of arrears of any sum advanced to any of its members and on furnishing a statement of accounts in respect ofthe arrears and after making G such inquiry as he deems fit issue a certificate f{lr the recovery ofthe amount stated therein to be due as arrears. " Ifa society has failed to take action under sub-section (1) in respect of any amount due as arrears, the Registrar, after satisfying himsel~ may on his own motion issue a certificate for the recovel)' of the amount stated therein to be due as arrears and such a certificate shall be deemed to have been issued on an application made by the society H 842 SUPREME COURT REPORTS [2007] 4 S. C. R. A concerned [sub-section (2)).

A certificate issued by the Registrar under sub· ~ -' section (I) or sub-section (2) shall be final and conclusive proofofthe arrears stated to be due there. in and the certificate shall be executed in the manner specified in sub-section (2) of Section 70. The Registrar or any person authorized by him in this behalf shall be deemed, when exercising any power under this Act for the recovery of any amount by the attachment and sale B or by sale without attachment of any property, or when passing any orders on any application made to him for such recovery, or to take steps in aid of such property to be a Civil Court for the purpose of Article 182 of the First Schedule to the Indian Limitation Act, 1908 in terms of Section 72.

Under Section 73, the·Registrar is also empowered to make attachment of property· C before decision or order unless adequate security is furnished by a person, who is found to be defaulter ofthe loan ofthe society to direct the attachment of the said property before decision or the order. 20. Chapter XI deals with Appeal, Revision and Review. Under Section 75, the Government, for the purpose of this Act, is competent to constitute D as many tribunals as may be necessary for such area or areas as may be specified in the Notification. The Tribunal shall consist ofa Chairman and not more than two other members to be appointed by the Government. The Chairman shall be a person who is or has been a judicial officer not below the rank of a District Judge and a member shall be a person, who holds or E has held a post not below the rank of Additional Registrar or" Co-operative Societies.

Any person or society aggrieved by any decision passed or order made by the Registrar or any other person authorized under the various provisions of the Act enumerated in Section 76 is free to file an appeal to the Tribunal. The Registrar under Section 77 is empowered to exercise the powers of revision either on his own motion or an application made to him by the F aggrieved party. THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT. 2002 {'THE -r--· MSCS ACT. 2002'] 21. The Multi-State Co-operative Societies Act, 1984 was enacted by G the Parliament and Section 74 thereof deals with various disputes including recovery of debts due to the co-operative banks. Parliament repealed the Multi-State Co-operative Societies Act, 1984 by the Multi-State Co-operative Societies Act, 2002 ["the MSCS Act, 2002"). 22. The object of the MSCS Act, 2002 was to consolidate and amend H the law relating to co-operative societies, with objects not confmed to one GREATERBOMBAYCO-OP. BANKlTD. v. UNITEOYAANTEX. PVT.

lTD. (lOKESHW. USINGHPANTA, J. 1843 State and serving the interests ofmembers in more than one State, to facilitate A the voluntary formation and democratic functioning of co-operatives as people's institutions based on self-help and mutual aid and to enable them to promote their economic and social betterment and to provide functional autonomy and for matters connected therewith or incidental thereto. 23. In Section 3(t) ofthe MSCS Act, 2002, a 'co-operative bank' means B a multi-State co-operative society, which undertakes 'banking business'. Section 3(h) defines a 'co-operative society' to mean 'a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State'. In terms of Section 3(p), a 'multi-State co-operative society' means 'a society registered or deemed to be registered C . under this Act and includes a national co-operative society and a federal cooperative'.

Chapter IV of the Act deals with members of multi-State cooperative societies and their duties, rights and liabilities. Settlement ofdisputes touching the constitution, management or business ofa multi-State co-operative society are to be referred to an arbitration under Section 84 of Chapter IX of the Act. The order or decision recorded by the Authority under Section 39 D or Section 40 or Section 83 or Section 99 or Section l0l can be executed in the manner provided in Chapter XI of the Act. Section 99 and Section I0l under Chapter XII provide for appeals to the Appellate Authority and review of its orderS. Section 22 of the MSCS Act, 2002 provides for conversion of a Co-operative Society into a Multi-State Co-operative Society by an E amendment in its bye-taws with the approval of the Central Registrar who shall consult the Registrars of co-operative societies of the State concerned.

The Act provides for its own machinery for registering multi-State societies · and for federal co-operatives thereunder as also the rights of the members, directors and managements and other matters like privileges, properties and funds and matters connected therewith as well as machinery for settlement F of disputes and winding up thereofas set out in about 38 Sections of the said Act beginning from Chapter VII to Chapter XIV. THE RESERVE BANK OF INDIA ACT, I934 {the RBI ACT] 24. In Section 2 (i) of the RBI Act, "co-operative bank", "co-operative G credit society", "director", "primary agricultural credit society", "primary cooperative bank" and "primary credit society" shall have the meanings respectively assigned to them in Part V ofthe Banking Regulation Act, 1949. 25. Chapter. III-A of RBI Act deals with Collection and Furnishing of H l . 844 SUPREME COURT REPORTS [2007] 4 S. C. R. A Credit Information.

In Section 45A (a) " banking company" means a banking j ~ company as defmed in Section 5 ofthe Banking Regulation Act, 1949 (10 of 1949) and includes the State Bank of India, [any subsidiary bank as defmed in the State Bank of India (Subsidiary Banks) Act, I959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any B other financial institution notified by the Central Govenunent in this behalf]". THE BANKING REGULATION ACT. 1949 (the BRACT): "\-" 26. This Act was brought into force on 16th March 1949. Section 3 of the BRAct clearly provides that the Act would apply to Co-operative Societies c in certain cases, subject to the provisions of Part V of the Act. The BR Act defines " banking company" under Section 5(c) as follows:- (c) "banking company" means any company which transacts the business [in India]. " D 27.

In Section 5(d) "company" means any company as defmed in section 3 of the Companies Act, 1956 (I of 1956); and includes a foreign company \ within the meaning of section 591 of that Act: 1- 28. Chapter V of the BRAct was inserted by Act 23 of 1965. w. e. f. 1. 3. 1966. Section 56 of the Act provides that the provisions of this Act, as E in force for the time being, shall apply to, or in relation to, banking companies subject to the following modifications namely :- "Throughout this Act, unless the context otherwise requires:- (i) references to a "banking company" or "the company" or "such F company" shall be construed as references to a co-operative bank; (ii) ............................................................................... " 29. The purpose and object of modifications were to regulate the G functioning of the co-operative banks in the matter of their business in banking.

The provisions of Section 56 itself starts with the usual phrase "unless the context otherwise·requires" is to make the regulatory machinery provided by the BR Act to apply to co-operative banks also. The object was not to defme a co-operative bank to mean a banking company, in terms of )( Section 5 (c) of the BRAct. This is apparent from the fact that instead of H amending the original clause (c) of Section 5 separatt: clause (cci) was added GR£,1. TEllBOMBAYC(). ()P. BANI YAANTEX. PVT lTD (I. OKESHWARSIN 18AYCO-OP. BANKLTD''· UNITEDYARNTEX. PVT LTD. (LOKESHWAASJNGHPANTA. I. J849 36. In the light of the factual situation and having gone through the A above-said relevant provisions of different Statutes and relevant Entries of Lists I and II of the Seventh Schedule of the Constitution, we have heard the learned counsel for all the parties and with their assistance we have gone through the decisions brought before us by them. 37. Mr. S.

Ganesh, learned Senior Advocate appearing on behalf ofthe B • appellant in Civil Appeal Nos. 432 to 434 of2004, vehemently contended that r . the High Court of Bombay completely failed to appreciate the meaning of "banking company" as defined in Section S{c) of the BRAct which clearly and indisputably does not cover or include a 'co-operative bank' registered under the MCS Act, 1960 or the MSCS Act, 2002. He submitted that Section C 56 ofthe BRAct did not amend the definition of 'banking company' in tenns of Section 5 (c), but for all intents and purposes Act No. 23 of 1965 merely extends the application of the provisions of the BR Act to ' a co-operative bank' even though it is not a ' banking company' as defined in Section S(c). He contended that the Parliament in its wisdom did not make the RDB Act applicable to all banks to which the provisions of the BR Act were made D applicable.

It was urged that the reason why co-operative banks were excluded from the ambit of the operation of 'the RDB Act by confming the said Act only to a " banking company" as defined in Section 5(c) of the BRAct was that under the MCS Act, 1960 Act and the MSCS Act, 2002 co-operative banks established under the Societies Act had an effective and speedy E machinery for recovery of their dues and, therefore~ it was neither necessary nor beneficial to make the RDB Act applicable to co-operative banks for the recovery ofdues from their members under the respective State Co-operative Legislations. He next contended that the co-operative banks established under the MCS Act, 1960 and the MSCS Act, 2002 and transacting the business of banking shall advance loan to their members only as per the F ,. I provisions contained in both these Statutes and not to any other person.

Therefore, under these enactments "co-operative banks" can only recover their dues from their members, whereas the RDB Act will be applicable to all other banks, which have advanced loan to any person/society/corporation/ industry, etc. etc. without any stipulation of membership of the Banks. G 38. Mr. Amar Dave, Advocate appearing in lA Nos. l0-11 of2006 in Civil Appeal No. 432 of2004, submitted that as per the Scheme ofthe BRAct, the ·;; legislative intention is to classify co-operative banks as completely a separate category and the same cannot be included in " Banking Company" in terms of Section 5 (c) of the Act. He contended that it has been well demonstrated H 850 SUPREME COURT REPORTS [2007] 4 S. C. R. A from the Statement of Reasons and Objects behind the passing of the RDB Act itself, that the same was enacted merely for expeditious adjudication and recovery of debts due to Banks and Financial Institutions.

The Committees formed prior to the enactment ofthe ROB Act also more or less did not cover the co-operative banks for the purpo~es of the recommendations in general B for improving the recovery system. He next contended that the recovery of debts by the co-operatives from their members are covered . by specific Acts such as the Co-operative Societies Acts ofthe States, which are comprehensive and self-contained legislations. Further submission was that for multi-state A. co-o~ratives, there is a specific enactment in the form ofthe MSCS Act, 2002 comprehensively. providing the legal framework in respect to issues pertaining C to such co-operatives. Therefore, co-operative banks are, in any case, not covered by the provisions of the ROB Act by invoking the doctrine of incorporation. He next submitted that the State' s power under List II, Entry . 32 of Seventh Schedule of the Constitution is not subject to or subordinate to the power of the Union List I, Entry 45. D 39. Dr.

Rajeev Dhavan, learned Senior Advocate, appearing for respondents in Civil Appeal No. 6069/2005 was requested to assist the Court ,.... _ in those matters which were listed on the Board on the day when the matters were heard. He contended that both List I, Entries 43 and 45 as well as List II, Entry 32 of the Seventh Schedule must be given the widest possible E . interpretation in their respective spheres. He submitted that although Article 246 (l) begins with a non-obstante clause, easy recourse should not be made to the non-obstante clause without first making an effort of reconciliation between the Union and the State Entries. In other words, under a federal set up, the States are not to be readily denuded ofpowers which the Constitution makers gave to them as exclusively reposted in them.

He contended that it F was really tht: intention ofthe Constitution makers to ensure that the provision is made for Peoples' co-operatives and the idea of co-operatives and people are necessarily interlinked associations and organizations. Learned senior counsel made a reference to a decision of this Court in Zoroastrian Cooperative Housing Society Ltd. v. District Registrar, Co-operative Societies (Urban) [2005] 5 SCC 632 at Para 15: G "...... The co-operative movement by its very nature, is a form of voluntary association where individuals unite for mutual benefit in the production and distribution ofwealth upon principles ofequity, reason ). (. and common good.... ". H GREATERBOMBAYCO-OP. BANKLTD. v. UNJTEOYARNTEX. PVT. LTD. [LOKESHWARSINGHPANTA. J. J85J 40.

He then contended that on plain reading of definitions of 'ban~· A [Section 2(d)]; 'banking company' [Section 2(e)], 'debt' [Section 2(g)] and ·'financial institution' {Section 2(h)] ofthe RDB Act, it becomes clear that the Act is concerned with debts of corporate banks and financial institution~ which were constituted under Lisf I, Entry 43 and the concept of 'banking• under Section 5(b) of the BR Act is very different from the activity of a 'financing bank' under the APCS Act, 1964. B 41. Mr. K. N. Bhat, learned Senior Advocate appearing on behalf ofth~ •• Reserve Bank of India in SLP (C) No. 22621 of2005 contended that the pith and substance of the Co-operative Societies Acts enacted by various States must be taken into consideration and not a particular activity of the society.

· C He next contended that the expression "co-operative bank" in Section 56(cci) means a 'State Co-operative Bank', a 'Central Co-operative Bank' and defmition of'Primary Co-operative Bank' in clause (ccv) means a 'co-operative society' the primary object or principal business ofwhich is the transaction ofb~ing business and no attempt is made by the Parliament to amend Section 5(c) of the BRAct to include 'co-operative societies' doing the business of banking D within the meaning of 'banking company' as defmed in Section 5 (c) of the · RDBAct. 42. Mr. Bhim Rao Naik, learned senior counsel appearing on behalf of the Cosmos Co-operative Bank Ltd. in Civil Appeal No. 436 of2004, submitted that the defmition of'banking company' under Section 2(d)(i) ofthe RDB Act E on its plain reading indicates that it does not refer to co-operative banks, but to companies incorporated under the Companies Act.

He contended that Section 56 of the BR Act creates a fiction only for the' purposes of the said Act and cannot be applied to another Act, viz. , the ROB Act in the absence of any indication to that effect. He next contended that the State Legislature F by virtue ofEntry 32, List II ofthe Seventh Schedule has the power to make law with respect to co-operative societies including societies doing banking business. Learned counsel also contended that the MCS Act, 1960 and the MSCS Act, 2002 both deal with their members and as per regulation of loan making policy, loan can be given to the members only ofthe societies subject to certain exceptions and in any event under Entry 43, List I, the Parliament G. cannot legislate on incorporation ofCo-operative Societies since Co-operative - Societies are excluded in Entry 43 of List I of the Seventh Schedule to the Constitution. 43. Mr. Vinod A. Bobde, learned senior counsel appearing on behalf of · H · 852 SUPREME COURT REPORTS [2007] 4 S. C. R.

A the State ofAndhra Pradesh in SLP (C) Nos. 25246-25247 of2005, challenging the judgment and order of the High Court of Andhra Pradesh, strenuously contended that Section 56 was inserted in the BR Act to make that Act applicable with modifications to co-operative banks with the main object to regulatn the functioning of the co-operative banks in the matter of their business as the banking companies were regulated (Part II), control over · B management (Part IIA) and all other aspects contained in the BR Act. The modifications given in clause (a) of Section 56 are apparently for suitably applying the substantive provisions of the Act to co-operative banks and do ... ·. not touch that part of the Act which is in the interpretation clause.

He then contended that the judgment of the High Court is erroneous on the grounds: C firstly, the co-operative societies have been deprived of the right to engage in the business of banking altogether; second, the co-operative societies have been·deprived ofspeedy, easily accessible and inexpensive remedies for recovery of their dues from members; thirdly, persons depositing monies in ' co-::operative banks have been deprived of their remedies under the A. P. (Protection of Interests of Depositors and Financial Establishments) Act, D 1999; and fourthly, while claims over Rs. IO lakhs by co-operative banks will have to go to the Debt Recovery Tribunals and claims below that sum will remain under the APCS Act, 1960 as amended in 1964. 44. Mr. T. R. Andhyarujina, learned Senior Advocate appearmg on E behalfofAndhra Pradesh State Co-operative Bank Ltd. in Civil Appeal No.

36 of 2006, yehemently contended that Co-operative Societies do a variety of activities for their members a·ccording to co-operative principles ofvoluntary and open membership controlled by their members. The Co-operative Banks are distinguished from banking companies who do not have to conform to such co-operative principles and who can give loans to the public. He submitted F that prior to the Banking Laws (Application to Co-operative Societies) Act, 1965 (Act 23 of1965), Co-operative Societies doing banking were not subject to regulation of their business of bankfug although deposits and working funds of Co-operative Banks were very large, but Act 23 of 1965 introduced a new Chapter V to the BR Act and regulated the banking business of ·co- G operative Societies as it had regulated banking by banking companies with necessary modification.

He submitted that recovery ofJoan by the Co-operative Banks are ancillary and necessary for the banks and every bank must have the power to refer disputes for adjudication and recover loans, etc. as expressly conferred by special provisions in the State Co-operative Societies Acts and Regulation ofCo-operative Societies which fell under Entry 32, List II. He aJso H suomitted that Entry 45, Lis~ I, is limited to laws which affect the essential ·~ GREATERBOMBAYCO. OP. BANK LTD. " UNIT£0YAAN TEX. P"i . LTO. [I. OK£SHWAllSINGHPANTA. J. J853 •. J business of a bank qua the bank viz. banking as defined in Section 2(b) of A the BR Act.

He then contended that there was a conscious and deliberate omission to exclude "Co-operative Bank" in the definition of " Banking Company" in Section 2(d) of RDB Act, whereas all other five categories of Banks were included in the said definition and nothing prevented the framers of the Statute to include "Co-operative Bank" in the definition clause of tl)e BR Act. It was next contended that significantly the Co-operative Banks haye B been brought in by the Parliament in Section 2(c)(v) of the Securitization Act by way of a Notification and enabling provisions and the purpose of Part Ill . . ,.. of the Securitization Act is also recovery of banks' dues, but the RDB Act I employed no such device. c 45. Per contra, Mr. S. B. Sanyal, learned senior counsel for the respondents in Civil Appeal No.

6077 of 2005, while adopting the reasoning ofthe High Court in the order under challenge submitted that throughout the BR Act wherein banking company or company does occur, it would also include co-operative bank on conjoint reading ofSection 2(e) ofthe RDB Act and Section 5(c) ofthe BRAct as amended on or from 01. 03. 1966. He submitted D that the conclusion is irresistible that the RDB Act will embrace debts due to co-operative bank which can only be recovered by the Tribunal constituted under Section 17 which shall have the sole jurisdiction under Section 18 and no authority or court is entitled to exercise any jurisdiction to recover such debt, in view of Section 34 which envisages that the ROB Act will have an E overriding effect, notwithstanding any other law for the time being in force. He next contended that Section 6 of the BR Act applies to all banks doing banku.

g business including commercial banks and as per command ofSection ·· 56( lXa) of the said Act, business of banking company will include busin~ss of co-operative banks as the co-operative banks are also advancing money either on security or without security to third parties and not restricted to F members of societies. He contended that in the matter of grant of loan etc. , I co-operative bank has only one restraint that is to obtain approval from Reserve Bank ofIndia which is manifest from Section 20(2)(b) ofthe BRAct and grant ofunsecured loan and advances by co-operative bank to any other person or on bills of exchange of commercial transaction is permissible. G Learned senior counsel further submitted that Section 47 of the APCS Act, 1964 is not the machinery through which the debt arising out of banking transaction can be recovered from one and all.

Similarly, under Section 61 of the APCS Act, 1964 the dispute which falls within the jurisdiction ofRegistrar are disputes between members, past members, employees, legal representativ~s ofthe deceased employees whereas the disputes between primary co-operative H 854 SUPREME COURT REPORTS [2007] 4 S. C. R. A bank qua depositors, loanees, bolder of bills of exchange giving rise to debt ~. . is beyond the scope of Section 6I. He submitted that the transaction of the banking business by co-operative bank is patent, manifest and direct and it can neither be incidental nor ancillary as the defmition of"primary co-operative bank" incorporated in Section 56 of the BR Act in no uncertain terms pronounces its primary object or principal business as banking business. B Learned senior counsel lastly submitted that the ROB Act enacted by the Parliament is later in point oftime than the APCS Act, 1964, both being special law .

for recovery of dues, the law of Parliament will override the law enacted by the State. . C 46. Mr. J. V. Suryanarayana, learned senior counsel appearing on behalf of the respondents in Civil Appeal No. 9I6 of2006, submitted that in Section 56 of the BR Act, several sub-sections were incorporated by Amending Act No. 23 of I965 whereby the co-operative societies ofthree categories, viz. , (I) Primary Co-operative Societies; (2) State Co-operative Societies;and (3) Central Co-operative Societies, which arc doing banking business are defmed as D ' banking companies' within the meaninr ofSection 2(d) ofthe ROB Act He submitted that the appellant-bank (Vasavi Co-operative Urban Bank Ltd. ) is to be construed as a banking company as mentioned in Section 5(c) of the BRAct by reason ofSection 56{aXi) ofAct No.

23 of 1965, in the manner and to the extent the amendments provided, therefore, it was the clear intention E ofthe Parliament to apply all Banking Laws mutatis mutandis to Co-operative ·Societies which have become co-operative banks by undertaking banking business as defined in Section 5(b) of the BR Act. He next submitted that recovery ofdebts is an essential ingredient ofbanking and the Parliament was empowered under Entry 45 of List I, relating to banking to constitute such · "I:ribunals, w~thout any reference to Entry II A of the Concurrent List. The F enactment itself is clearly indicative ofthe desire ofParliament to legislatively control, under Entry 45 of List I, "Banking" by Co-operative Societies, as it is the "Dominant Legislation" by virtue of Article 246 (I) and the State legislation under Entry 32 of List II has to be construed, accordingly and read down if necessary.

He submitted that the scope of Entry 32 of List II of G Seventh·Schedule is to enable the State Legislature to incorporate an entity known as a co-operative society, but does not enable the said entity to carry on bariking. 47. Mr. Raju Ramachandran, learned senior counsel appearing in Civil Appeal No. 432 of2004 for the intervenors assisted by Dr. P. B. Vijay Kumar, H Advocate, submitted that even if the co-operative bank lends loans only to GREATERBOMBAYCO. OP. BANK LTD. v, UNITEDYARN TEX. PVT. LTD. {LOKESHWARSINGHPANTA,l J855 ~ _.. . ~ its members, it will not alter characteristics of the banking company in the A light of the Amending Act No. 23 of 1965. He submitted that co-operative banks and co-operative companies are covered by the definition of Section 5 (c) of the BRAct. 48. Mr. Raghavendra S. Srivatsa, learned counsel appearing on behalf ofthe appellant-bank in Civil Appeal No.

916 of2006, submitted that the High B Court of Andhra Pradesh has failed to appreciate the distinction between the defmition of "banking company" under Section 5(c) of the BR Act and Section 2(c) of the RDB Act. He submitted that the Parliament had kept the definition of "banking company" under Section 5(~) intact by adding new definition of "co-operative bank" in clause (cci) and "primary co-operative C bank" in clause (ccv) of the Act No. 23 of 1965. 49. Mr. T. Raja, learned counsel appearing on behalfof the petitioners in SLP (C) No. 5598 of2004, submitted that the RDB Act is a special Statute enacted by the Parliament and the Co-operative Societies Act is a general Statute in nature. Therefore, the RDB Act will apply for the recovery of the D loans advanced by the co-operative banks whereas Co-operative Societies Act shall become inoperative. -- 50. Mr. S. Nanda Kumar, Advocate appearing on behalf ofrespondent No. 3 in SLP (C) No.

5598 of 2004, supported the contentions advanced by r Mr. T. Raja, Advocate. E 51. Dr. N. M. Ghatate, learned senior counsel appearing on behalf of respo! ldent Nos. l to 5 in Civil Appeal No. 436 of 2004, submitted that the subject of banking is covered in Entry 45, List I ofthe Seventh Schedule of the Constitution and as the recovery of debts/dues by the banks• is an essential part of banking business, the Parliament has legislative competence F ;- . f to legislate on the subjects. He submitted that as soon as the Parliament legislates under Entry 45, List I and makes a law relating to recovery ofdues by the banks, the provisions contained in the Co-operative Societies Acts relating to the subject will cease to operate in relation to the co-operative banks and the co-operative banks will follow the same procedure for recovery G of the dues as laid down in the RDB Act.

He then submitted that the cooperative bank will have to be included in the definition ofthe term "banking" as defmed in Section 2(d) of the RDB Act as Section S(c) of the BR Act ':. 1 cannot be read in isolation ignoring Section 56 ofthe Act. He submitted that the doctrine ofoccupied field because ofparamountcy, central legislation will H 856 SUPREME COURT REPORTS [2007] 4 S. C. R. A operate over State Law but to the extent the State Law is inconsistent or in conflict with the Central Law. In support ofthis submission, reliance is plac~d upon M/s Fatehchand Himmatlal & Ors. v. State ofMaharashtra, [1977] 2 SCC 670 para 56. He contended that from th~. date on which the Debts Recovery Tribunal was constituted under the RDB Act', the courts and authorities under the MCS Act, 1960 as also the MSCS Act, 2002 would cease B to have jurisdiction to entertain the applications submitted by the co-operative banks for recovery of their dues.

He next submitted that pith and substance of co-operative banks and other banks is the same as their primary function is taking deposits from public, financial institutions etc. and recovering the debt with interest. He also submitted that Entries in the Seventh Schedule C should ·not be read narrowly but with widest amplitude as they deal with legislative competence of Parliament and the State Legislatures. To support this contention, reliance is placed on R. C. Cooper v. Union ofIndia, [1970] I SCC 249 at para 36]. 52. Mr. Shekhar Naphade, learned senior counsel appearing on behalf D of the petitioners in SLP (C) Nos. l5621-15622 of2005 and in Civil Appeal Nos.

2819-22 of 2006, contended that Article 246 (1) of the Constitution of lndia is the source of the power vested in the Parliament to enact laws and if the subject maf1er of the legislation in its substantive form or even in its incidental manifestation is covered by List l and ifthe Parliament makes a Jaw E covering that aspect of the matter then the law made by the Parliament will override the law made by the State Legislature which othe~ise would have been valid on the basis of doctrine of pith and substance. He contended that the RDB Act enacted by the Parliament being paramount must supersede pro tanto the provisions of the MCS Act 1960, which was enacted by the State Legislature. In support of this submission, reliance was placed upon M/s F Hoechst Pharmaceutkal Ltd & Ors. v. State ofBihar & Ors. , [1983] 4 SCC 4S.

He also stated that the co-operative banks carrying on banking business as defined in Section 5{b) of the BR Act and the recovery of claims by the banks against the borrowers and debtors is a matter integrally and essentiaJly connected with the banking busiJtess as the subject matter of banking or the legislative field of banking is covered by Entry 45, List I of the Seventh G Schedule ofthe Constitution ofIndia and, therefore, it is open to the Parliament to establish courts and tribunals or any other machinery for recovery of banks' claims. He. submitted that the ambit and scope of Entry 32, List II is only relating to the incorporation, the management of the affairs of the cooperative society, the powers of the Managing Committee, the powers of H Generai . Body, the control of the Registrar or the State Government over the GR£ATEUIOMBAYCO-OP. BANKLTD. " UNITEOYAANTEX PVT. LTD {LOKESHWARSI'NGH PANTA,J.

J857 affairs ofthe society, admission ofmembers, expulsion ofmembers and disputes A amongst members etc. but the banking sector whether in public sector or in private sector or in co-operative sector is one unified banking industry. He next submitted that the banking regulation laws contained either in the BR Act or in the RBI Act or other provisions will cover the whole spectrum of banking sector and it is, therefore, in the fitness of things that even for the recovery ofthe claims ofthe banks against the borrowers there should be one B unified machinery and unified set of procedure and the same is to be found in the RDB Act. In the last, the learned counsel supported the judgments and ... orders of the High Court of Bombay and the High Court of Andhra Pradesh holding that as the co-operative banks are transacting banking business, they are covered by the definition of"bani T£X. PVT. LTD. {\. OKESiiWMSINGH PAWA, J.

1863 by Entry 32 of List II of the Seventh Schedule of the Constitution. Power to A enact would include the power to re-enact or validate any provision of law in the State Legislature, provided the same falls in an Entry of List II of the Seventh Schedule ofthe Constitution with the restriction that such enactment should not nullify a judgment of the competent court of law. In the appeals/ SLPs/petitions filed against the judgment ofthe Andhra Pradesh High Court, the legislative competence of the State is involved for consideration. Judicial B system has an important role to play in our body politit and has a solemn ,. obligation to fulfil. In s~ch circumstances, it is imperative upon the Courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitutional validity of the legislation. The burden of proof is upon the shoulders of the incumbent who challenges it.

C It is true that it is the duty ofthe constitutional courts under our Constitution to declare a law enacted by the Parliament or the State Legislature as unconstitutional when Parliament or the State Legislature had assumed to enact a law which is void, either for want of constitutional power to enact it or because the constitutional forms or conditions have not been observed or where the law infringes the Fundamental Rights enshrined and guaranteed in D Part III of the Constitution. 73. As observed by this Court in CST v. Radhakrishnan in considering the validity ofa Statute the presumption is always in favour ofconstitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles.

For sustaining the constitutionality E ofan Act, a Court may take into consideration matters ofcommon knowledge, reports, preamble, history of the times, objection of the legislation and all other facts which are relevant It must always be presumed that the legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It F ,. -' is also well-settled that the courts will be justified in giving a liberal interpretation in order to avoid constitutional invalidity. A provision conferrillg very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where a Statute is silent or is inarticulate, the Court would attempt to transmutate the inarticulate and adopt a construction which would lean towards G constitutionality albeit without departing from the material of which the law is woven.

These principles have given rise to rule of " reading down" the \. I · provisions if it becomes necessary to uphold the validity of the law. 74. In State ofBihar & Ors. V. Bihar Distillery Ltd. & Ors. , [1997] 2 sec H 864 SUPREME COURT REPORTS [2007] 4 S. C. R. A 453, this Court indicated the approach which the Court should adopt while examining the validity/constitutionality ofa legislation . It would be useful to . remind ourselves<>fthe principles laid down, which read: (SCC p. 466, para 17): "The approach of the court, while examining the challenge to the constitutionality of an enactment, is to start with the presumption of B constitutionality. The court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. TI1e court should not approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed.

Indeed, any such defects of drafting should be ignored out as part of the attempt to sustain the c validity/constitutionality of the enactment. After all, an Act made by the legislature represents the will of the people and that cannot be lightly interfered with. The unconstitutionality must be plainly and clearly established before an enactment is declared as void. The same approach holds good while ascertaining the intent and purpose of an D enactment or its scope and application. " 75. In the same para, this Court further observed as follows: "The Court must recognize the fundamental nature and importance of legislative process and accord due regard and deference to it, just as E the legislature and the executive are expected to show due regard and deference to the judiciary. It cannot also be forgotten that our Constitution recognizes and gives effect to the concept of equality between the three wings of the State and. the concept of "checks and balances" inherent in such scheme.

" F 76. The principJes of legislative competence were stated with precision by the Federal Court in Subramanyan Chettiar v. Muttusw~mi Goundan, AIR (1941) FC 47 as follows:- "It must inevitably happen from time to time that legislation though purporting to deal with a subject in one list, touches also upon· a G subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation would resul~ in a large number ofstatutes being declared invalid because the Legislature enacting them may appear to have legjslated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is H -- GllEATEllBOMBAY~- BM'K LTD. •· liNI1mYARNTEX. PVT LTD (LOKESHWAASINGHPANTA. l. J865 .... examined to ascertain its pith and substance or its true nature and A character for the purpose of detennine whether it is legislation with respect to matters in this list or that.

" 77. In A. S. Krishna v. State ofMadras, (1957] SCR 399 at page 4. 10, this Court applied these principles. B 78. In State ofRajasthan v. Chawala, [1959] (Suppl. l) SCR 904 at 909 1 Hidayatullah J. aptly described the principles ofpith and substance as under:- .. "The pith and substance of the impugned Act is the control of the use of amplifiers in the interests of health and also tranquility, and thus falls substantially (if not wholly) within the powers conferred c to preserve, regulate and promote them and does not so fall within the Entry in the Union List, even though the amplifier, the use of which is regulated and controlled is an apparatus for broadcasting or communication As Latham, C. J. , pointed out in Bank ofNew South Wales v. The Commonwealth: D f A power to make laws 'with respect to' a subject matter is a power ... to make laws which in reality and substance are laws upon the subjectmatter. It is not enough that a law should refer.

to the subject-matter or apply to the subject-matter: for example, income tax laws apply to clergymen and to hotel-keepers as members of the public; but no one E would describe an income-tax law as being, for that reason, a law with respect to clergymen or hotel-keepers. Building regulations apply to buildings erected for or by banks; but such regulations could not properly be described as laws with respect to banks or banking. " [Emphasis supplied] F ~ ' 79. Entry 43 List of I speaks of banking, insurance and financial corporat! ons etc. but expressly excludes co-operative societies from its ambit. The constitutional intendment seems to be that the co-operative movement was to be left to the States to promote and legislate upon and the bankjng activities of co-operative societies were also not to be touched unless G ... Parliament considered it imperative. The BR Act deals with the regulation of the banking business.

There is no provision whatsoever relating to proceedings ~ r for recovery by any bank of its dues. Recovery was initially governed by the Code ofCivil Procedure by way ofcivil suits and after the